Barry Ritholtz, founder of Ritholtz Wealth Management and columnist for Bloomberg, briefly recounts the story of Joseph Granville to convey the risk of “1) try[ing] to time markets; 2) tak[ing] ourselves too seriously; and 3) refus[ing] to acknowledge our fallibility.”
Granville rose to prominence in the 1970s and had a series of prescient calls by 1981, when 16,000 people were paying to subscribe to his advice and the Wall Street Journal described his newsletter as market-moving. On January 7, 1981, Granville told clients to “sell everything,” causing a 2.4% drop in the Dow Jones Industrial average on record volume. 1981 was, as Ritholtz recounts, “just about the start of the greatest bull market the world has ever seen, rising 1,447 percent during the next 20 years.”
In 2005, Mark Hulbert ranked Granville’s newsletter at the bottom of “the rankings for performance over the past 25 years – having produced an average of losses of more than 20 percent per year on an annualized basis.” Granville never reversed himself, and never admitted his error. Ritholtz advises: “Your best bet is to have a plan, stick to it and keep your own counsel.”
Barry Ritholtz, Bloomberg columnist and founder of Ritholtz Wealth Management, points out that 2015 has been essentially flat and, looking to history, concludes: “by itself, a flat market does not tell us very much of anything about the following years’ subsequent returns.” He notes that two opposing views are common in predicting markets after flat returns, one bearish (“flattening indicates that markets are setting up for a major correction or worse”) and the other bullish (“a sideways year is a ‘pause and refresh'”). He observes that either can seem compelling “depending on the subconscious bias you may be seeking to confirm.” Data from 1928 to today shows that, if anything, periods following flat years “tended to be less extreme, with smaller swings in either direction.”
Earlier this month, Barry Ritholtz of Ritholtz Wealth Management suggested in his Washington Post column that amateurs may be able to beat professional investors. Countering Charles Ellis’ suggestion that amateur investors are seriously disadvantaged as amateur football players would be against the pros, Ritholz opines that amateur investors “have enormous advantages of their own.” He says investors “can jiujitsu . . . benchmarks, costs and fees, size, and career risk” that restrict professional investors and, thereby, achieve better results on their own. Each point is highlighted below.
- Benchmarks: Ritholtz notes that comparisons to benchmarks, as well as related marketing considerations, can undermine the pros. “You,” the amateur investor, “can feast on Beta instead of starving on Alpha,” he says.
- Costs/Fees: Ritholtz describes finance industries fees as “an egregious drag on returns,” noting that “you can keep your [costs] cheap, while the pros cannot.”
- Time: “You can have much, much longer-term time horizons” than professional investors, according to Ritholtz. He suggests that “being able to think long term and have patience is a luxury the professionals do not enjoy.”
- Career risk: Ritholtz observes that career-related considerations for investors in most investment firms incentivize them to “manage risk very conservatively.” Partly for that reason, professional investors’ “own interests may not be those of their clients.” While professionals are restricted by the criteria that can influence their careers, amateur investors “get to set [their] own metrics.” He suggests the amateur has “an enormous advantage” in this regard, recommending, “figure out what your long-term financial goals are, then create a plan to achieve your objectives,” measuring success by progress toward the goals.
While pundits have been throwing around the term “bubble” throughout the stock market’s climb over the past few years, Barry Ritholtz doesn’t sound concerned that we’re in one.
In a wide-ranging interview with Barry Ritholtz on Bloomberg’s Masters In Business podcast, Charles Schwab’s Liz Ann Sonders offers her take on the bull market, and a look at her early years working for the great Martin Zweig.
With the Nasdaq recently closing above 5,000 for the first time in a decade-and-a-half, bears have said that the index really should be adjusted for inflation to get a better assessment of where things stand, valuation-wise. Barry Ritholtz says that’s nonsense.
In a wide-ranging interview with Barry Ritholtz on Bloomberg View, quantitative investing guru James O’Shaughnessy recently talked about why human beings are such inferior prognosticators compared to computer models, what that means for investors, why stocks may well be safer than bonds over the long run, and why holding period duration is so critical.